ComCom investigation wins $60m payout for investors

Thousands of investors who lost millions of dollars when the financial product Credit SaILS failed in the global financial crisis will receive some welcome news in the post around Easter.

Letters are being sent out to investors who lost their capital investments as a result of the Credit SaILS failure in 2008. The letters will detail whether they are eligible investors and if so how much they are being offered under the $60 million settlement reached in December 2012 between the Commerce Commission and the five companies it had investigated over the failure. More than 2,550 investors will recover approximately 85% of their lost capital.

“This is a substantial pay out that will have a significant impact in some communities. For example in Otago and Southland investors will be receiving just under $16 million. Investors in the Auckland region will get back more than $10 million. Most of these investors were elderly and having this money returned to them will have a big impact on the quality of their lives,” said Dr Mark Berry, Chairman of the Commerce Commission.

The Commission’s investigation found that there were grounds to bring proceedings against Forsyth Barr Limited, Credit Agricole Corporate and Investment Bank, Credit Sail Limited and Calyon Hong Kong Limited. The Commission reached the view that Credit SaILS were marketed and sold in a way that may have misled investors under the Fair Trading Act.

The companies strongly disagreed with the Commission’s views and confirmed that any claim for breach of the Fair Trading Act would be strenuously defended. In the circumstances, the Commission decided that a better outcome for investors would be produced through the prompt creation of a voluntary scheme to compensate investors. That settlement scheme establishes a $60 million fund from which eligible investors will be substantially reimbursed.

“Eligible investors will receive around $850 for every $1000 they lost. The potential payments range from the smallest at $132 through to the largest single payment of $2.5 million,” said Dr Berry.

Others who stand to benefit from the pay out include charities and community organisations, who collectively will be returned $4.6 million.

The Commission is encouraging investors to think very carefully about the terms of the offer and take independent legal and financial advice. Under the terms of the settlement agreement investors who wish to accept the offer will be agreeing to release the companies and any other persons connected with the Credit SaILS investment from any on going legal liability. Investors who wish to accept the settlement payment cannot also take legal proceedings.

Investors who receive a letter in the post offering the payment can easily verify that the letter is genuine and not a scam by phoning the freephone number on the letter which is for Public Trust, who have been appointed to disburse the fund. That number is 0800 003 018

Credit SaILS were sophisticated debt securities marketed and sold to the New Zealand public in 2006 with the prospect of 8.5% interest income and capital protection. $91.5 million was raised through the offer. Credit SaILS failed in 2008 and the notes are now virtually worthless. On the information available, the Commission estimates the total loss for those eligible for a share of the settlement fund is around $70 million.

The Commission has reached the view that Credit SaILS was marketed and sold in a way that is likely to have breached the Fair Trading Act, in that:

• the representations that Credit SaILS were ‘capital protected’ were misleading and deceptive • Credit SaILS were marketed to the average investor • Credit SaILS were highly complex and unsuitable for the average investor and the companies who marketed and sold Credit SaILS ought to have known that the product was unsuitable for the average investor.

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